Almost 20% of homes are upside down on their mortgages
May 18, 2009
The idea of building wealth through home ownership is a concept that has quickly evaporated for millions of home owners across the country. Home ownership was once a matter of pride and financial security, as generations of home owners purchased homes, made improvements and were able to sell the properties for more money and retire or move up to larger homes.
According to a recent report released in the Wall Street Journal as many as one in five home owners now owes more than the value of their home. The dramatic down turn in home values is a direct reflection of the severe economic recession the United States has encountered over the past twenty four months. What started as a fall out in the sub prime lending arena, has quickly spread to all areas of the finance world and send the world economic markets on a tailspin.
Home values have historically appreciated at levels of 2-3% per year. The hardest hit markets in the U.S. are on the west coast, in states such as California or Arizona where property values were doubling every two years at the heart of the real estate boom. Today, these markets have housing inventories, where fifty percent of the homes have mortgage loans that are higher than the homes value.
Home owners who are deeply underwater are left with limited options. They can pursue home loan modifications or try to refinance their mortgage with their services, but are limited to 105% of their homes value, even with the new government program to try to help these home owners to stay in their property without the fear of foreclosure. Property owners who have been fortunate to refinance their mortgage in the lower rates and plan to stay in the home have few options if they wish to explore home remodeling projects.
Home remodeling projects have traditionally been financed by a home equity line of credit or home equity loan. These loans were given out with little regard to underwriting standards for many years, but today they are amongst the most highly scrutinized finance vehicles. Home equity loans, which are considered to be second lien mortgages will not be available to home owners who owe more than the value of their home. Home owners who are underwater will need to pursue alternatives to home financing, such as personal loans or credit card loans and need to proceed cautiously when exploring these finance vehicles as rates and payments are not as liberal as traditional home equity terms. Remodeling your home, even if you are upside down with the value, is not always the worst plan. If you have a stable job and plan to be in the home long term, with an optimistic outlook for a rebound to the housing market and home prices, then enjoying your property in the manner you desire may outweigh the financial pros and cons of a home improvement project.
